The Truth About ESG Investing
applying intelligence to Another Wall Street Scam!
According to Salesforce CEO Marc Benioff, “Business is the greatest platform for change,” however if we engage in a “culture of phony, derivative, halfhearted, or misguided efforts, it will eventually sink.” Benioff believes that having a social purpose is important, as business values permeate everything we do. Values are the bedrock of resilient companies, which translates to resilient societies. “In the future, profits and progress will no longer be sustainable unless they serve the greater good,” says Benioff.
Therefore, the notion of ESG (Environmental Social Governance) on the surface sounds like a good idea, however, in reality, it has not positively impacted social concerns, or environmental concerns related to climate change and has not had any influence on ushering in meaningful change on the governance side. As of now, there is no mechanism in place, no evidence, and no way to quantify ESG investing relative to its impact on real people’s lives.
ESG investing in its present form is fake! Make-it-up-as-you-go, misleading misrepresentations of reality and a construct created by billionaire investor and founder of Black Rock, Larry Fink — Black Rock is the world’s largest asset manager with an AUM of a recorded $8.59 trillion as of 2022. Black Rock has built this empire on the disingenuous construct of ESG — a marketing and sales engine that uses morality rankings to sell mutual funds or managed money services. A bogus ranking system that allows institutional investors to check the ESG boxes to comply with their institutional ESG mandates. It’s all just a corrupt, industry-created and self-governed system to sell more managed money investments for Wall Street.
These fund managers get high fees and continue to enrich themselves even though the vast majority of them never beat the index. And worst, the regulators continue to allow them to use ESG without a transparent mechanism or quantifiable system that measures the impact of these ESG claims.
A New York Times article, dated Dec 2, 2022, found that “over a full 20-year period ending last December, fewer than 10 percent of active U.S. stock funds managed to beat their benchmarks.” This included those claiming ESG as a strategy. Therefore, what ESG represents is nothing more than a cleverly constructed sales strategy to drive Wall Street business, masking the reality of the big lie! ESG is a morality play to make people put aside applying their intelligence, to use emotion and irrationality instead…swaying them into buying and paying high fees for underperforming investments. It’s a scam!
According to a March 2022 study written in the Harvard Business Review (HBR,), “ An Inconvenient Truth About ESG Investing, “ by Sanjai Bhagat. The research reveals that investing in sustainable funds that prioritize ESG goals was supposed to help improve the environmental and social sustainability of business practices that can impact society. Close analysis suggests that it’s not only not making much difference to companies’ actual ESG performance, but it may also be directing capital into poor business performers says Bhagat. ESG investing has been touted to be a performance enhancer to portfolios but this has not panned out.
According to the HBR research article. As of December 2021, assets under management at global exchange-traded “sustainable” funds that publicly set environmental, social, and governance (ESG) investment objectives amounted to more than $2.7 trillion; 81% were in European-based funds, and 13% in U.S.-based funds. In a Bloomberg interview with Fink, on January 17, 2023, about the ESG backlash, Fink did not even take it seriously, and he went on to tout that “if you just reflect on Black Rock’s flows last year, the backlash may have caused $4 billion out but we got $400 billion in…so you tell me.” Therefore, this is all about the money and as long as the billions keep flowing, the scam continues. It’s always about the money!
Investors have not fared well financially in all this and have been willfully ignorant of the reality and motivation of ESG investing promotion. The University of Chicago researchers analyzed the Morningstar sustainability ratings of more than 20,000 mutual funds representing over $8 trillion of investor savings. The highly-rated sustainability-rated (ESG) funds attracted more capital than the low-rated funds, but none of the high-sustainability funds outperformed any of the lowest-rated funds. So, from an investor perspective, and according to the data, ESG funds do not deliver better financial performance. And investors’ capital does not have any impact whatsoever on humanity’s problems and challenges.
Further, on the governance side, Columbia University and the London School of Economics researchers compared the ESG record of U.S. companies in 147 ESG fund portfolios and that of U.S. companies in 2,428 non-ESG portfolios. They found that the companies in the ESG portfolios had worse compliance records for labour, environmental, and social. It was also discovered that the companies added to ESG portfolios did not even subsequently improve general compliance or environmental regulations.
Why is this so, and how did things get so out of control? HBR points out that “there’s some evidence that companies publicly embrace ESG as a cover for poor business performance.” And it seems that investors, especially the institutions are not doing their due diligence by their investment mandates for ESG. A recent paper by Ryan Flugum of the University of Northern Iowa and Matthew Souther of the University of South Carolina discovered that when corporate managers underperformed analysts’ earnings expectations they often blame their ESG mandates. Invoking morality investing as an excuse. However, when they exceeded earnings expectations, they made few, if any, public statements related to ESG, the report finds.
Based on the evidence! Investors gain nothing extra from investing in funds that claim ESG mandates, and their capital has no socioeconomic, environmental or governance impacts on society!
A July 01, 2022 article in Bloomberg titled World’s super-rich boost ESG scrutiny on greenwashing fears, highlights that investment firms for the world’s ultra-rich, “are increasingly boosting scrutiny of sustainable deals as greenwashing fears mount.” The clients seem to be getting wise to the scam, as more than half of the roughly 110 family offices that allocate to sustainable areas “aren’t confident they could identify misleading environmental claims about their investments.” The research says that about 53% of those Family Offices surveyed have increased their analysis and due diligence procedures for sustainable investments.
Family offices might help to expose and drive change in the fake ESG investing world, as the family offices have surged over the last twenty years, due to booming fortunes across the tech and finance world. These new super-rich individuals are more sophisticated and have their environmental and social impact priorities and agendas. However, the inertia that Fink and the corrupt Wall Street industry scam have built remains a force to be reckoned with, so I’m not optimistic.
Nevertheless, regulatory scrutiny and enforcement can drive change as well. Evident from the Greenwashing probes ongoing, and the fairly recent raid of Deutsche Bank AG’s asset manager, DWS Group. These actions must ramp up, increasing further scrutiny of sustainability claims. According to Bloomberg Intelligence, ESG investing is expected to surge to more than $50 trillion by 2025, or about a third of global assets under management. 50 trillion can have real impacts on real people’s lives based on how its invested, but not unless companies and fund managers are held accountable and responsible for the claims they make. Otherwise, nothing will change. Without some form of a transparent impact measuring process and reliable reporting mechanisms, the scam continues unabated.
Family office Mobilis, which oversees the fortune of the Mulliez family behind the Auchan chain of grocery stores, have said “What’s needed is a global standardization of methodologies,” and impact measurement tools. That’s a start! However, the bottom line is that all market participants must adhere to the same standards, with enforcement, and there must be underlying honesty and some basic human decency. Otherwise, this ends up being just another ongoing Wall Street scam, where the rich insiders continue to get richer and ordinary people continue to get scammed!
